China Struggling to Recover, Vulnerable to Sputtering Economy and Rising Inventories

1. Edition: 4th April 2020 #TheChemAnalystExpress China Key Headlines •Another Utah refinery enters into production of ‘Tier 3’ fuel •Whiting Petroleum falls as U.S. shale producers opt to close rigs •Naphtha falls below LPG, feedstocks collapse in Europe •Asia’s naphtha dips lowest since 2008 •OPEC to hold a conference on Monday, oil price collapse to be discussed Southeast Asia Chemicals Pricing (Key Products) •Ethylene: Ethylene prices continued to drift in Southeast Asia amid bearish market sentiments and falling crude prices. CFR prices for Ethylene in South East Asia were assessed at $ 440/ tonne, down by $ 20/tonnes. •Toluene: Weak downstream demand as result of production cuts and shutdown to curtail the spread of Coronavirus has further pulled down the prices of Toluene to $ 370/tonnes CFR India. •Phenol: Phenol prices tumbled in Southeast Asia as an outcome of sluggish market sentiments as major economies are facing slowdown. CFR Prices of Phenol were assessed at $ 750/tonne, down by $20/tonne. •Styrene Monomer: Styrene prices in Southeast Asia edged marginally high amid recovery in downstream demand for the product. Prices of the product were assessed at $ 540/tonne, up by $30/tonne. Crude Oil Scenario On Friday, crude oil observed an astonishing drift after witnessing a much-awaited gains post the U.S. President Donald Trump’s triumphant tweet on Thursday. This fall in oil prices is an indication of market skepticism over the deal to settle Saudi and Russia price war without emphasizing on the oil production scale of U.S. The situation may force the U.S. shale producers to believe that majors want to dominate the issue so they can remove smaller rivals in the country’s biggest shale basins, including the Bakken and the Permian, in Texas and New Mexico. The efforts made to resolve the price war is of no use until U.S oil production is also examined to stabilize the market in times of concerns over global economic recession. Consequently, Brent crude futures recorded a fall by 3.27 per cent and was assessed at $28.96 per barrel while WTI crude slumped by 4.46 per cent to $24.19 per barrel. China S Struggling to Recover, Vulnerable to S truggling to Recover, Vulnerable to Sputtering puttering Economy and Rising Inventories Economy and Rising Inventories Index WTI Crude Oil (Nymex) Brent Crude (ICE) Natural Gas (Nymex) Units USD/bbl. USD/bbl. USD/MMBtu 1.650 Price 24.19 28.96

2. Exclusive News & Analysis After Pandemic woes, China’s chemical industry ambitious to emerge stronger After a prolonged nationwide lockdown to contain the spread of novel coronavirus, Chinese chemical sector is preparing for a comeback. This can be sensed from the pace with which Chinese players have resumed operations in their factories in March following widespread shutdowns that led to closure of several factories backed further tensed by extended supply chain disruptions. Although the country seems to have controlled the virus transmission to a greater extent, the global economic slowdown is delivering it a second blow. With no new positive cases for weeks, China seems to have triumphed in controlling the transmission when rest of the world is struggling to control the community spread by imposing lockdowns. However, the undue halt in operations and weak demand has put a deeper dent to China’s Chemical industry which seems to China’s Industrial output and Manufacturing Index According to a latest report issued by the National Bureau of Statistics of China, encompassing all the sectors, China’s industrial output dropped by 14% in the first two months of 2020, compared to the last fiscal year, and profits slumped by 39%. Chemical manufacturing was among the hardest-hit sectors, with output declining by 21% and profits by 66%. Although operations started resuming appreciably in the month of March, industrialist believe that lack of international orders has forced the players to implement output cuts. Production activities in the world’s second biggest economy which can be measured in terms of the China’s manufacturing purchasing managers' index (PMI) for March rose to 52.0 - the highest since September 2017 - from a record low of 35.7 in February 2020. It is anticipated that since most of China’s end-products are meant for exports, their demand would further dissipate now that the global economy is already slipping into a recession. As per the recent interview by an official from Zhongxiang, a phosphorus chemical industry, that manufacturers are facing raw material and logistics constraints in addition to difficulty implementing environmental protection rules. Global Demand Outlook Caixin China Manufacturing PMI 55 55 50.1 50 50 45 45 40 40 35 35 30 30 Feb'19 May'19 Jan'19 Mar'19 Apr'19 Dec'19 Jan'20 Mar'20 Aug'19 Sep'19 Feb'20 Oct'19 Jul'19 Nov'19 Jun'19 The lockdowns and quarantine measures in Western part of the globe have led to drop in demand for a wide range of Chinese-made goods, including phones, toys, and clothes. This has already led to bankruptcies and shutdowns of export-oriented plants in the coastal parts of China. Till now, China leads the world in chemical sales with a greater dependency of major economies over its manufacturing sector. However, analysts believe that the current situation can be a game-changer as worsening overseas situation is another blow to country’s total chemical sales in this fiscal forcing world’s 1400 Chemical Sales in 2018 (€ Billlion) 1200 1000 800 600 400 200 0 Source:Cefif Chemdata

3. industrialists to re-think upon concentrated supply-chain issues. While others anticipate that there is a strong possibility of a quick V-shaped recovery in the coming months indicating a strong rebound in China’s growth from the second quarter of 2020. Falling Exports, A Major Threat For PE and PP, huge inventory pileups have created a pressure over petrochemical players. Increased inventories at ports for MEG, styrene, benzene, xylene, and many others pose a major threat to China’s chemical and petrochemical growth. Slump in crude oil prices in has given hope to the country’s manufacturing sector which is gazing at better margins as production activities improve especially among naphtha-based polyolefin and ethylene glycol producers. Methanol, benzene and PTA experience strong downfall in prices following the crude-crash. Industry Research International Plant Shutdown News •JXTG Nippon Oil Energy to shut crude distillation Unit for scheduled turnaround JXTG Nippon Oil and Energy Corporation is a renowned petrochemical company engaged in the manufacturing and sales of petrochemical products. The company has announced a scheduled turnaround in its crude oil distillation unit at Kawasaki refinery having a plant capacity of 235000 barrel/day of crude oil. The turnaround is anticipated to take place by late April till mid of July. •Sinopec Tianjin Petrochemical to go for Maintenance Shutdown Sinopec Tianjin Petrochemical located in China is one of the major companies of the country engaged in petrochemical manufacturing. The company has reported a maintenance shutdown in its crude distillation unit (CDU)unit having a 2.5 Million MTPA from late April till July. India Plant Shutdown News •Haldia Petrochemicals announced turnarounds in PE and PP units Haldia Petrochemicals, a major petrochemical company in India has halted operations its Polyethylene units having a capacity of 330KTPA for HDPE and 370 KTPA for LDPE. Moreover, it has also announced shut in operation of Polypropylene units with a capacity of around 350KTPA. This shut down is in compliance to the initiatives taken by the Indian government to constrain the spread of Covid-19. Strategic Expansions and Global Footprints •Synthomer Plc announced acquisition of Omnova Solutions Synthomer Plc, a renowned company with headquarters in UK, dealing in specialty chemicals has announced the acquisition of Omnova Solutions which is engaged in manufacturing of emulsion polymers and specialty chemicals. The purpose of this acquisition is to strengthen Synthomer’s presence globally and to provide it a strong platform for future stability and growth. Latest Technological Investments •Mitsubishi Consortium proposed recycling of CO2 for Methanol Production Mitsubishi Consortium consists of several companies selected by New Energy and Industrial Technology Development Organisation for research activities on carbon recycling and its conversion into methanol .The recent process technology will work in obtaining a mixture of CO2 and hydrogen which will be further processed for methanol production by going through a number surveys and tests. Mitsubishi Gas Chemical company will serve as technological partner and provide supply chain expertise related to synthesis catalysis and methanol production.

4. Monthly Analyst View ChemAnalyst expects softness in the demand of majority of bulk chemicals and petrochemicals globally in the coming weeks as the coronavirus impact is set worsen the economic situation. However, global consumption of feedstocks, intermediates, polymers, and elastomers is expected to recover by the second half of 2020 assuming that India and China show signs of economic recovery by then. Combined with worst crash in crude oil, and unjust volatility in the markets, there is a significant pressure on creditworthiness around the world. Consumer spending is anticipated to be the major concern as unemployment figures would rise as youngsters fear job losses due to economic downturn. How chemical Industry will respond to the pandemic? APAC polyethylene and polypropylene demand is expected to recover from June 2020 onwards. Major producers announced price decreases for feedstocks such as methanol, styrene, benzene, and naphtha in March. Methanol contract prices decreased by about USD 3000 per tonne in Q1 of 2020. Due to plummeting demand, ChemAnalyst anticipates that consumption of ethylene, propylene and butadiene could be impacted in the second quarter of 2020 as there has been a substantial reduction in manufacturing activity across several countries which adopted lockdown measures as to restrict the spread of the coronavirus. Market Impact Analysis: April Product Sector Impact Petroleum Products: HSD, Gasoline, ATF and Natural Gas Transportation, Utilities Aviation, Agriculture, High (Demand to decline by 25-29% in 2020) Feedstock: Methanol, Styrene, Ethylene, Propylene, PTA & MEG Medium (Only healthcare, technical textile, packaging industry likely to outperform) Polymer, Fibre, Furniture, Pharmaceutical Worst affected and demand is likely to dive by 45-50% in coming months on YoY basis Elastomer & Rubber Automotive, Heavy Engineering Outperform, globally there is product shortage due to surge in demand from countries infected by Covid-19 Cleaning Disinfectant, Dyes Chemicals, Hand Sanitizer, Specialty Chemicals Source: ChemAnalyst Analysis Growing demand of raw materials used for manufacturing of cleaning chemicals, disinfectants and hand wash are saving grace for companies like Dow Chemicals, BASF, Evonik, Arkema and Huntsman. More and more companies have entered into manufacturing IPA, Ethanol, Acetone, Hydrogen Peroxide and Peracetic acid. All major producers are planning to expand their capacities by debottlenecking or changing their product line so that incremental demand of these chemicals can be fulfilled. Diageo and Pernod Ricard have started producing disinfectant from denatured ethanol, glycerol and hydrogen peroxide in their manufacturing facility in Europe and Asia Pacific region. “The outbreak of the novel coronavirus in USA, Italy, France, Germany, United Kingdom could be seen as an opportunity than a threat for countries like China and India to consolidate their position in the global chemical & petrochemical market. Companies from these countries should analyze their peers from Europe and North America and explore new markets for better supply-chains.” Jaideep Kumar Senior Analyst – ChemAnalyst jaideep@chemanalyst.com

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